Why SEC's Eyes are Fixated on the CryptoMarket

David Drake

March 4, 2018

Three companies, Victura Construction Group, PDX Partners and Cherubim Interests, aren’t allowed to trade their stocks during the period between February 16 and March 2, 2018. This is because the Securities and Exchange Commission (SEC) has temporarily halted their trading following claims that the companies had acquired blockchain and cryptocurrency related assets.

"The SEC imposed a 2 week halt to trading of these companies with the likely intent to allow the market adequate time to perform their due diligence. The concern in this regard is to note that the SEC took action against a company because of cryptocurrency holdings. Ideally we would like to police ourselves, and allow crypto to slowly integrate into financial regulations that make sense," notes Pinnacle Brilliance CEO Roman Guelfi-Gibbs.

The market capitalization for each of the three firms is below $5 million and they trade their stocks over-the-counter. SEC's move to suspend trading of these firms has raised questions on whether the regulator is now focusing on the nascent virtual currency industry.

Todd A Nichols, Lead Digital Strategist at AssetToken, thinks the SEC's focus on the industry demonstrates its seriousness in ensuring proper classification of securities.

"I think the SEC is paying close attention to be sure everyone knows they are serious about trying to figure out how to classify ICO's, Tokens and Cryptocurrencies. The Know Your Customer process when promoting projects is going to be paramount going forward. I wouldn't be surprised to see some sort of grading system like the Swiss just implemented as we move forward," he says.

Investor protection

On the other hand, some cryptocurrency market players feel that SEC's action is intended to protect investors largely.

"The SEC is doing its best to protect the retail investor who possibly does not fully comprehend what they are investing in. Firms such as Cherubim Interests, PDX Partners and Victura Construction Group are circumventing the ICO procedure by directly acquiring cryptocurrency and blockchain technology-related assets. This could be done to bring more legitimacy to their platforms as opposed to an ICO to gain funding, where many traditional and institutional investors are still skeptical. This is the reason why in the past you have seen public firms shares skyrocket in a short period of time," notes Dominic Brown, COO at DocTailor.

SEC's Obligation

Agreeing that the suspended companies may have sought to ride on blockchain technology to boost the value of their stock, Kent Yan, founder and CEO of TraDove, doesn’t see the SEC taking radical steps to regulate the crypto industry.

"I think those people want to use Blockchain to boost their stock prices. I still believe SEC will take rational and cautious steps to regulate the Blockchain industry," he says.

The SEC has an obligation to safeguard investor interest and maintain an orderly and fair operation of the securities market. When a breach occurs in the securities market, the regulator has no option but to take action.

"This forces the SEC to feel obligated to step in and restrict trading of the firm's stock because these firms are almost like "overnight blockchain companies". I believe if a firm has always had the intention of being a crypto or blockchain company the SEC's intervention is far less likely as we have seen with HashChain and their acquisition of NODE40," Brown adds.

Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.

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